China Restricts Rare Earth Elements Exports

Chinese Government Plans To Cut Exports Of Rare Earth Elements By 40%

By Joshua Pidek, Guest Contributor
12 September 2010

China announced in July 2010 that it would cut its export of rare earth elements 40% by 2012. Since China currently produces 97% of the world’s supply, this announcement has sparked a renewed interest in opening new mines and in developing substitute materials.

Rare Earth Metals
Rare earth elements are a group of seventeen chemical elements, such as ytterbium, gadolinium, and cerium, which were originally isolated from oxide-type minerals in the Ytterby mine in Sweden in the late eighteenth century. These elements are commonly used in the production of camera lenses, permanent magnets, jet engines, flat panel displays, nuclear batteries, lasers, vanadium steel, and high temperature superconductors, among many other items. However, the extraction and refining of rare earth metals is very costly, time consuming, and hazardous to both the workers and the environment. In the United States, for example, many rare earth deposits are intermixed with thorium, which is radioactive. Despite the difficulty of obtaining these elements, however, their extreme versatility and superiority to existing alternative materials has stimulated global demand to the point that it will soon surpass current production capabilities. Dave Cohen, a writer for Resource Investor, quoted a report published by the Congressional Research Service in late July summarizing the severity of the situation:

About 124,000 metric tons of rare earth elements were produced in 2009, with worldwide demand during this period estimated to be 134,000 metric tons – the difference having been made up from existing stockpiles. By 2012, worldwide demand is expected to reach 180,000 metric tons while mining operations are not expected to keep up with demand in the near term.

While the market for rare earth metals is not very large, amounting to only $1.4 billion worldwide annually, demand is skyrocketing. For example, Toyota, which requires the use of Lanthanum for the production of hybrid car batteries, plans to increase production of the Prius from one million units to two million units. Additionally, wind turbine production is also booming, due largely to subsidies from the United States and many European governments. This has already begun to affect the prices of several of the rare earth elements. Cerium (used in catalytic converters for diesels) has doubled to $4.00 per pound since 2007, and neodymium (used in permanent magnets and hard drives) has quintupled to $23 in the same time period.

Thus, while the cash worth of the market is not as significant as steel or oil, it is appreciating rapidly. Whoever is able to control the production of rare earth metals is in an excellent strategic position against their competitors while alternatives and new mines are developed.
Chinese Control

China has been able to surpass the United States in production of rare earth metals due to a much lower labor cost and a lack of environmental controls. As China began producing more and more rare earth elements at lower cost, mines in the United States and elsewhere were forced to close or sell so that China now produces 97% of the world’s supply of rare earth metals. China has continued to expand its control of the world market through investing in the overseas producers of rare earth elements, such as mines in South Africa.

However, after China announced its export restriction, many companies in countries heavily reliant upon China for their supply of rare earth elements have begun exploring the possibility of either reopening their old mines or digging new ones. Molycorp, an American mining firm in business since the 1950s, has already raised $394 million to reopen the Mountain Pass, California, rare earth elements mine, once the world’s largest producer of both cerium and neodymium. Additionally, scientists from the United States Geological Survey (USGS) spent this past August examining a heavy rare earth elements project site belonging to Ucore Rare Metals, Inc., in Bokan Mountain, Alaska. The mine has numerous deposits of terbium (used in low-energy lightbulbs) and dysprosium (used in electric motors), as well as uranium. The United States government has expressed a strong interest in securing a reliable domestic supply of rare earth elements.

The United States is not the only country accelerating the development of alternatives to Chinese imports of rare earth elements. Lynas Corporation, a mining company in Western Australia, has seen its shares rise by 800% since the Australian government blocked an unsolicited investment by a state-owned Chinese mining company.

Implications
The result of China’s reduction in exports will likely be at least a temporary increase in the cost of rare earth elements, until feasible and affordable alternatives are discovered or new sources of rare earth elements begin production. This also means an increase in the worth of companies such as Rare Element Resources, Avalon Rare Metals, Ucorp, and Molycorp, to name a few. This trend will likely continue beyond the immediate development of alternative producers to China, as Congress has hinted at the creation of a rare earth elements stockpile, akin to the current existence of oil reserves, in order to create ready access by the military and government in case of an acute global shortage.

Cui Bono?
As for the question of why China is cutting exports so sharply even in the face of increasing demand, there are several theories. One is that the cut is designed to force prices up worldwide through restricting supply. Another theory is that it is designed to make rare earth elements more affordable in China itself, or perhaps to coerce foreign consumers into buying more Chinese electronic products. It is unclear exactly what China’s reasoning is.

Recommendations
In light of these facts, it would seem that the most realistic course of action by the government would be to loosen regulation on mining companies, especially those specializing or exclusively dealing in rare earth elements. Other than that, there is little that the United States can do to prevent China from continuing to cut exports.

Sources Cited
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“China Provinces To Unify Rare Earth Controls, Global Times Says.” 08 September 2010. Bloomberg Businessweek. 08 September 2010. http://www.businessweek.com/news/2010-09-08/china-provinces-to-unify-rare-earth-controls-global-times-says.html.

“Chinese Institutional Investors Look At Rare Metals Overseas.” 08 September 2010. Resource Investor. 08 September 2010. http://www.resourceinvestor.com/News/2010/9/Pages/Chinese-Institutional-Investors-Look-at-Rare-Metals-Overseas.aspx.

“Digging In.” 02 September 2010. Economist. 08 September 2010. http://www.economist.com/node/16944034?story_id=16944034.

“It’s Off To The Races At Molycorp.” 25 August 2010. Resource Investor. 08 September 2010. http://www.resourceinvestor.com/News/2010/8/Pages/Its-Off-to-the-Races-at-Molycorp.aspx.

“Japan Works To Slip China’s Chokehold On Rare Earth Metals.” 09 September 2010. Forbes Blogs. 11 September 2010. http://blogs.forbes.com/jeremybogaisky/2010/09/09/eroding-chinas-grip-on-rare-earth-metals/?boxes=financechannelforbes.

“Rare Earths Are Becoming A Lot More Rare.” 17 August 2010. Resource Investor. 08 September 2010. http://www.resourceinvestor.com/News/2010/8/Pages/Rare-Earths-Are-Becoming-a-Lot-More-Rare.aspx.

“Rare Earth Element.” Wikipedia. 11 September 2010. http://en.wikipedia.org/wiki/Rare_earth_element.

“The East Is Green: China’s Alternative Energy Raw Materials.” 07 September 2010. Resource Investor. 08 September 2010. http://www.resourceinvestor.com/News/2010/9/Pages/The-East-Is-Green-Chinas-Alternative-Energy-Raw-Materials-.aspx.

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“US Team Studies Alaskan Rare Earth Deposit.” 02 September 2010. Resource Investor. 08 September 2010. http://www.resourceinvestor.com/News/2010/9/Pages/US-Team-Sudies-Alaskan-Rare-Earth-Deposit.aspx.

“Use Of Rare Earth Metals Outstripping Supply.” 31 August 2010. Ars Technica. 08 September 2010. http://arstechnica.com/science/news/2010/08/use-of-rare-earth-metals-outstripping-supply.ars.